Appointment Of Managing Director/Chairman Of Party As Arbitrator Is Prohibited U/S 12(5) Of Arbitration Act: J&K High Court

The Jammu & Kashmir and Ladakh High Court bench of Chief Justice Tashi Rabstan has held that managing director or chairman of a party to the arbitration agreement cannot be appointed as Arbitrator in light of section 12(5) read with Seventh Schedule of the Arbitration Act. Brief Facts The petitioner has filed this application under section 11 of the Arbitration Act, seeking appointment of the Arbitrator. The dispute originated from the allotment of 04 kanals of land in IID Center, Battal Ballian, Udhampur, by the respondent. It was alleged by the petitioner that despite depositing the required amount, the possession of the original plot was not handed over and it was untraceable. The respondent allotted a different plot in 2020 and also executed a lease deed in 2022. It is contended by the petitioner that the timeline set by the respondent within which the industrial unit was to be operationalized is unrealistic, considering the delay in handing over the possession. Despite paying ground unit rent and submitting the site plan, the respondent cancelled the lease in March, 2023. The petitioner has filed the section 9 petition before the learned Principal and District Judge Udhampur, whereby the learned court granted the interim protection and stayed the operation of the cancellation order. The petitioner submitted that the appointment of Managing Director/Chairman of the respondent as Arbitrator as per arbitration clause violates section 12(5) and Schedule 7 of the Arbitration Act. In light above submission, the petitioner seeks appointment of an independent arbitrator to resolve the dispute pertaining to cancellation of the lease and recovery of the allotted land. Per contra, the respondent submitted that it is clearly mentioned that all the terms and conditions of lease deed dated 21.04.2022 executed by the petitioner with the department shall be binding upon the contractor and in the same lease deed, there is a clause 41, which talks of referring of any doubt, dispute, question or difference to the Sole Arbitration of the Managing Director/Chairman Industrial Development Corporation for arbitration under the Jammu and Kashmir Arbitration and Reconciliation Act. Observations: In Haryana Space Application Centre (HARSAC) & Anr. Vs. M/s Pan India Consultants Pvt. Ltd, 2021 the Supreme Court has held that “Section 12(5) read with the Seventh Schedule is a mandatory and non derogable provision of the Act. In the facts of the present case, the Principal Secretary to the Government of Haryana would be ineligible to be appointed as an arbitrator, since he would have a controlling influence on the Appellant Company being a nodal agency of the State.” The court noted that in Ellora Paper Mills Limited vs. The State of Madhya Pradesh, 2022 the Supreme Court has further held that unless and until there is an express agreement in writing to continue with the arbitration proceedings by the earlier Arbitral Tribunal, an application under section 12(5) to terminate the mandate of the earlier Arbitral Tribunal and to appoint a fresh arbitrator would be maintainable. In light of the above discussion, the court observed that “in view of amended Section 12(5) of the Arbitration and Conciliation Act, 1996 read with the Seventh Schedule, I am of the considered opinion that Clause 41 of the Lease Deed, which provides the Managing Director/Chairman of the department to be a sole arbitrator for adjudicating the claims/disputes between the petitioner and the department, would be against the law governing the field.' Accordingly, the present petition was allowed and an independent arbitrator was appointed. Case Title: Avtar Krishan Suri V/s The Estate Manager, J&K Small Scale Industries Development Corporation Ltd. Citation: 2024 LiveLaw (JKL) 336 Case Number: Arb P No.75/2023 Judgment Date: 11/12/2024 Click Here To Read/Download The Order

Appointment Of Managing Director/Chairman Of Party As Arbitrator Is Prohibited U/S 12(5) Of Arbitration Act: J&K High Court

Mohd Malik Chauhan

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Appointment Of Managing Director/Chairman Of Party As Arbitrator Is Prohibited U/S 12(5) Of Arbitration Act: J&K High Court

Mohd Malik Chauhan

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